Generally, it is recognized that demand for electrical energy is not constant; there are certain hours of each day when demand “peaks” at levels considerably higher than the remainder of the day. If utility companies buy energy during the peak demand periods, they normally need to pay a premium for transferring energy when the transmission lines are congested. Flat-rate electric tariffs shield most consumers from fluctuations in energy costs, especially those caused by buying energy supplies on short notice. Utilities, however, are not insulated from these fluctuations. When the market rate for electricity rises above the approved retail rate, utilities are caught in the middle, which can be financially disastrous. Utilities can't simply pass price increases along to consumers without regulatory approval.
Further, in some countries there is a significant peak load shortage while peak load continues to grow faster than average usage. It has come to be recognized that it is not cost-effective for utilities to implement a comprehensive smart-grid infrastructure to tackle peak load problems.
As things stand, power utilities generally predict a demand pattern throughout any particular day. Any supply-demand imbalance thus normally arises due to inaccuracies in the prediction, or unscheduled changes in supply (e.g., a power station fault) and/or demand. Such imbalance thus puts the grid in a critical state.
To address such issues, the shifting of deferrable loads has been contemplated and addressed. Thus, deferrable loads (e.g., as might be encountered with electric vehicles, water heaters, energy storage devices, and washing machines) can be shifted from on-peak times to off-peak times to reduce peak load dramatically. Also, deferrable loads can be interrupted for a short time during situations of supply-demand imbalance. Some utilities have also proposed the use of differential tariff plans to encourage and incentivize consumers for load shifting. However, it can be appreciated that the success of a load-shifting plan depends upon the consumer's responsiveness and compels either manual intervention or some type of sophisticated load scheduling technique. While the former remedy can be unwieldy and inefficient, the latter has hitherto proven to be elusive in any practical and cost-effective sense.